Development banks propel Tanzania’s growth

DAR ES SALAAM: THE recent FY2026/27 national budget discussions in Parliament generated considerable debate on the future of Tanzania’s development finance institutions (DFIs), including proposals to merge the Tanzania Agricultural Development Bank (TADB) and TIB Development Bank.

While differing views are natural in a democratic process, the debate has highlighted a broader issue: limited public understanding of the role development banks play in driving economic transformation.

This article seeks to clarify the strategic importance of development banks in supporting Tanzania’s long-term development agenda. It neither supports nor opposes any particular institutional arrangement but explains why these institutions exist and why they remain essential for achieving national development goals.

As Tanzania begins implementing the Fourth Five-Year Development Plan (FYDP IV) and advances toward Vision 2050, financing has become one of the most critical determinants of success.

The country’s ambition to achieve sustainable upper-middle-income status and eventually build a trillion-dollar economy requires substantial investment in productive sectors and strategic infrastructure.

The approved FY2026/27 national budget of 62.33tri/- outlines ambitious priorities, including industrialisation, infrastructure expansion, agricultural modernisation, energy development, climate resilience, affordable housing and digital transformation. Yet, government budgets alone cannot provide the financing required to achieve these objectives.

This is where strong and well-capitalised development banks become indispensable. A common misconception is that development banks and commercial banks perform similar functions. In reality, they operate under different mandates.

Commercial banks primarily focus on profitability and shortto medium-term lending.

Development banks are established to address financing gaps in sectors and projects that are strategically important but often considered too risky, too costly, or too longterm for conventional lenders.

Around the world, countries that have successfully transformed their economies have relied on strong development finance institutions.

Germany’s KfW, Brazil’s BNDES, China Development Bank, the Development Bank of Southern Africa, and the African Development Bank have all played major roles in financing infrastructure, industrialisation, agriculture, innovation, and social development.

These institutions have helped mobilise long-term capital and direct it toward national priorities.

Tanzania can draw important lessons from these experiences. Strengthening institutions such as TIB Development Bank, TADB, and other specialised DFIs is not merely a policy option—it is an economic necessity.

As the economy expands and diversifies, the need for specialised development financing will only increase. One of the greatest challenges facing developing economies is limited fiscal space. Governments must simultaneously finance education, healthcare, security, public administration, social protection, and debt obligations.

While the Ministry of Finance remains central to resource mobilisation, increasing demands on public finances make it difficult for government alone to fund every strategic investment.

Development banks serve as critical financial intermediaries by mobilising and channeling long-term financing into productive sectors.

Rather than relying solely on public borrowing, they structure projects, prepare investment proposals, and identify financing instruments capable of attracting both local and international investors.

In doing so, they reduce pressure on government budgets while accelerating project implementation.

A key advantage of development banks is their ability to access funding sources often unavailable to traditional government agencies.

These include concessional loans from multilateral institutions, climate funds, sovereign wealth funds, pension funds, export credit agencies and impact investors.

Such resources generally come with lower interest rates and longer repayment periods, making them better suited for development projects.

For example, a major energy, transport, or water project costing hundreds of millions of dollars does not necessarily require full financing from the national treasury.

A development bank can prepare feasibility studies, structure risk-sharing arrangements, mobilise guarantees, and attract international lenders and private investors.

In many cases, government involvement may be limited to policy support or partial guarantees, while most financing is mobilised externally through the development bank’s expertise and networks.

The importance of development banks is especially evident in sectors that are critical to economic growth but underserved by commercial finance.

Agriculture is perhaps the most prominent example. Despite employing a large share of Tanzania’s population and contributing significantly to national income, the sector continues to face financing constraints due to weatherrelated risks, price volatility, and long production cycles.

Development banks are uniquely positioned to address these challenges through specialised financing products tailored to farmers, agribusinesses, irrigation schemes, storage facilities, agro-processing industries, and agricultural value chains.

Improved access to affordable financing can boost productivity, strengthen food security, increase exports, and create jobs across rural Tanzania.

Infrastructure financing presents a similar challenge. Investments in roads, railways, ports, airports, water systems, and energy projects require large capital outlays and long repayment periods.

Commercial lenders typically favour shorter-term investments with quicker returns. Development banks, however, are specifically designed to finance projects with long gestation periods and substantial developmental impact.

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By providing long-term financing, they enable governments to undertake transformative investments that improve competitiveness, reduce production costs, and stimulate private-sector growth. Without such institutions, many strategic infrastructure projects would struggle to secure adequate financing.

Industrialisation is another area where development banks can make a decisive contribution. Tanzania’s ambition to move up the value chain and expand manufacturing requires significant investments in industrial parks, processing facilities, logistics networks, and technology adoption. Yet many industrial projects fail to secure affordable long-term financing.

Development banks can bridge this gap through patient capital, guarantees, equity participation, subordinated debt, and blended finance solutions. Equally important, they can support project preparation to ensure investments are technically sound, financially viable, and attractive to private investors.

Small and medium-sized enterprises (SMEs), widely recognised as engines of employment and economic growth, also stand to benefit significantly from strong DFIs. Many SMEs struggle to access affordable credit because of limited collateral, short operating histories, or perceived risks.

Development banks can address these barriers through credit guarantees, risksharing mechanisms, and customised financing products that encourage entrepreneurship and business expansion.

Beyond traditional development sectors, climate finance represents a growing opportunity. As global investment increasingly shifts toward sustainability and resilience, substantial resources are becoming available through climate funds and green financing facilities.

However, accessing these resources requires technical expertise, project preparation capacity, and compliance with international environmental and social standards.

Development banks can serve as accredited intermediaries for climate finance, channeling resources into renewable energy, sustainable agriculture, water management, reforestation, and climate adaptation projects.

In doing so, they unlock new sources of financing while supporting environmental sustainability. Importantly, development banks do far more than provide loans.

They offer technical assistance, investment promotion, project preparation services, and institutional capacity building. Many potentially transformative projects fail not because financing is unavailable but because they are poorly prepared or inadequately structured.

By turning development ideas into bankable investments, development banks improve both the quality and efficiency of public spending.

From a public finance perspective, strong development banks can significantly reduce pressure on the Ministry of Finance. Rather than relying exclusively on sovereign borrowing, governments can leverage DFIs to attract private capital and external resources.

This allows scarce public funds to be concentrated on essential social services while commercially viable development projects receive financing through specialised institutions.

Furthermore, development banks contribute to fiscal sustainability by ensuring investments undergo rigorous appraisal processes.

Technical feasibility, financial viability, environmental sustainability, and developmental impact are assessed before financing decisions are made.

This helps improve investment quality, maximise economic returns, and minimise the risk of resources being allocated to projects with limited impact.

As Tanzania continues its journey toward industrialisation, infrastructure expansion, and higher productivity, demand for innovative financing solutions will continue to grow.

Achieving the country’s long-term development aspirations cannot depend solely on public expenditure, nor can commercial banks shoulder the burden alone.

Development banks provide the critical bridge between government priorities and private capital markets. Looking ahead, policymakers should focus on strengthening the governance, capitalisation, technical expertise, and resource mobilisation capacity of development finance institutions.

This includes expanding access to international capital markets, attracting climate finance, strengthening publicprivate partnerships, and broadening the range of financial instruments available to support strategic investments.

Tanzania’s future prosperity will depend not only on the availability of financial resources but also on the institutions capable of mobilising and deploying them effectively.

Strong development banks remain essential for financing long-term investments, reducing fiscal pressures, crowding in private-sector participation, and accelerating sustainable economic transformation.

Strengthening these institutions is therefore not merely a financial policy choice, it is a strategic imperative for Tanzania’s long-term growth, resilience, and prosperity.